Democratic Tax Delusions

” One of the most dangerous myths that has infected the current debate over the direction of tax policy is the oft repeated claim that the tax increases under President Bill Clinton led to the boom of the 1990s. In their Wall Street JournalOp-Ed last Friday, for example, Clinton campaign manager James Carville and Democratic pollster and Clinton advisor Stanley Greenberg write the increase in the top tax rate to 39.6% “produced the one period of shared prosperity in this past era (since 1980).”

While this myth is now a central part of liberal Democratic folklore, it is contradicted by the political disaster and poor economic results that followed the tax increase. The real lesson of the Clinton Presidency is the way back to prosperity lies not through increased taxes on “the rich,” but through tax and regulatory reform and a return to a rules based monetary policy that produces a strong and stable dollar.

The 1993 Clinton tax increase raised the top two income tax rates to 36% and 39.6%, with the top rate hitting joint returns with incomes above $250,000 ($400,000 in 2012 dollars). In addition, it removed the cap on the 2.9% Medicare payroll tax, raised the corporate tax rate to 35% from 34%, increased the taxable portion of Social Security benefits, and imposed a 4.3 cent per gallon increase in transportation fuel taxes.

If these tax increases were good for the middle class, then they should have been popular. Yet, in the 1994 elections, the Democratic Party suffered historic losses. “